A Whitehall department that wants to persuade hundreds of ethnic minority staff to move from London to Newport is under investigation by the Commission for Racial Equality for breaking anti-discrimination rules.

The Office for National Statistics (ONS) is accused of "social engineering" by two Whitehall unions because it is arguing that one of the benefits of the relocation would be "to improve the ethnic mix of the Newport area" by moving its own staff there.

The dispute has arisen because under the Race Relations Act all departments must draw up a race equality impact assessment when they want relocate large numbers of staff.

Its resolution will have wide ranging implications for plans to move up to 20,000 civil servants out of London over the next three years.The TUC and the Commission for Racial Equality will be discussing the implications of the policy at a conference on Friday.

John Healey, financial secretary to the Treasury, has already met unions and management to discuss how the issue could be resolved.

The ONS is in the frontline because it is one of the most racially diverse departments in Whitehall. Its own ethnic impact assessment reveals that between 35% and 38% of its lower-paid staff are from ethnic minorities, as are 14.5% of middle management and 4.7% of senior management.

It employs 1,000 people in Pimlico, central London, and wants to cut this to 400 and move its headquarters to Newport, Gwent.

Len Cook, the ONS's former chief executive, told senior civil servants in June: "We should reflect the mix of communities in the UK among the mix of staff in ONS ... It will need determination and clear targets for each year to retain our existing mix."

He also told a diversity workshop in Whitehall that the ONS, which is responsible for independent statistics and the census, was "totally dependent on the trust of all communities in the UK to achieve high response rates and in turn to have our statistics trusted by all communities". The impact assessment admits that the main result of the move would result in making the lower paid black and Asian staff "significantly disadvantaged".

Many of the lowest paid staff, who are Muslim women, would be the worst affected because their husbands might not want or be able to move to jobs in south Wales.

The assessment said: "A high proportion of ethnic minority staff in this group could either face compulsory redundancy if other jobs could not be found ... this would not promote race equality.

"Replacements for these staff could not be recruited in Newport in the same racial mix, because of the composition of Newport, nor could they be recruited from Cardiff or Bristol for the same reason.

"As a consequence, the proportion of ethnic minority staff employed by ONS overall would be considerably lower and this would have an adverse effect on racial equality."

The two unions - the Public and Commercial Services Union, and Prospect - are unhappy about the findings and are using a complaint to the CRE to try to stop the move. A spokesman for PCS said: "If the relocations go ahead, they would have the effect of making ONS one of the whitest departments in Whitehall. Very few staff in general, and even fewer non-white staff, have indicated that they are prepared to relocate with their posts.

Of the 750 relocated posts, the number of people prepared to follow them is tiny - almost certainly less than 30 people overall."

A spokesman for ONS said: "We reject the complaint that we are trying to introduce social engineering by moving people from ethnic minorities down to Newport as totally out of proportion."

The spokesman confirmed that the CRE in London had written to the commission following the complaint from the unions.

"We have told the CRE we are planning a number of initiatives to try and solve the problem," the spokesman said. "We intend to invite our staff to a series of tea parties to explain the move and are offering to pair up staff with "buddies" to help them move from London to Newport.We are also going to advertise in all the Welsh universities, to encourage students from ethnic minorities to come and work at ONS in Newport."